REGULATORY ASSETS AND REGULATORY LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2017, which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2017. SJI has no regulatory assets or regulatory liabilities other than those of SJG.

SJI's and SJG's Regulatory Assets consisted of the following items (in thousands):



	March 31, 2018		December 31, 2017
Environmental Remediation Costs:
Expended - Net	$	110,529	$	100,327
Liability for Future Expenditures	161,263		171,696
Deferred Asset Retirement Obligation Costs	42,622		42,368
Deferred Pension and Other Postretirement Benefit Costs	78,211		78,211
Deferred Gas Costs - Net	54,351		16,838
Conservation Incentive Program Receivable	12,118		26,652
Societal Benefit Costs Receivable	2,699		2,484
Deferred Interest Rate Contracts	6,006		7,028
Energy Efficiency Tracker	1,832		2,094
Pipeline Supplier Service Charges	686		708
Pipeline Integrity Cost	4,977		5,280
AFUDC - Equity Related Deferrals	12,899		12,785
Other Regulatory Assets	3,436		2,753

Total Regulatory Assets	$	491,629	$	469,224

ENVIRONMENTAL REMEDIATION COSTS - SJG has two regulatory assets associated with environmental costs related to the cleanup of 12 sites where SJG or its predecessors previously operated gas manufacturing plants. The first asset, "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the Remediation Adjustment Clause (RAC) and insurance carriers. These costs meet the deferral requirements of GAAP, as the BPU allows SJG to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. SJG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the condensed consolidated balance sheets under the captions "Current Liabilities" (both SJI and SJG), "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs over seven-year periods after they are spent.

DEFERRED GAS COSTS - NET - Over/Under collections of gas costs are monitored through SJG's Basic Gas Supply Service (BGSS) bill credit. Net undercollected gas costs are classified as a regulatory asset, and net overcollected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval. The BGSS regulatory asset increased $37.5 million from December 31, 2017 to March 31, 2018, primarily due to the actual gas commodity costs exceeding recoveries from customers.

CONSERVATION INCENTIVE PROGRAM (CIP) RECEIVABLE – The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was more than the established baseline during the first three months of 2018, resulting in a decrease in the receivable. This is primarily the result of cold weather experienced in the region.

SOCIETAL BENEFIT COSTS (SBC) RECEIVABLE - This regulatory asset primarily represents the deferred expenses incurred under the New Jersey Clean Energy Program, which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs. Previous SBC rates produced recoveries greater than SBC costs, which resulted in the regulatory liability.

SJI's and SJG's Regulatory Liabilities consisted of the following items (in thousands):



	March 31, 2018		December 31, 2017
Excess Plant Removal Costs	$	23,527	$	23,295
Excess Deferred Taxes	276,831		263,810

Total Regulatory Liabilities	$	300,358	$	287,105

EXCESS DEFERRED TAXES - As disclosed in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2017, the Excess Deferred Tax balance relates to Tax Reform enacted into law December 22, 2017 (see Note 1). The increase in this regulatory liability of $13.0 million during the first three months of 2018 is related to excess tax amounts that were billed to customers in the first quarter of 2018. Pending approval by the BPU of the refund methodology, amounts are expected to be returned to customers in May 2018.